New Ad Hoc Group Checks In at Northwest

Holds nearly $950 million in claims of the bankrupt airline; last week another ad hoc committee agreed to disclose its holdings.
Stephen Taub and Dave CookMarch 29, 2007

A second group of hedge funds has bought up securities and claims of bankrupt Northwest Airlines and formed an ad hoc committee, reported the Associated Press.

The “ad hoc committee of certain claims holders,” which owns a total of $949.3 million in claims, includes Avenue Capital, Black River Asset Management, CarVal Investors, Davidson Kempner Capital Management, DE Shaw Laminar, Durham Asset Management, Fortress Investment Group, GK Capital, GSO Capital Partners, and Stanfield Capital Partners.

CarVal has the largest holding, according to the AP. As of March 16, it held $158.5 million in Northwest trade claims for which it paid $102.7 million, and it had sold short another $11.3 million in bond or note claims, the wire service reported.

In recent years, a large number of hedge funds have invested in the securities of distressed and bankrupt companies. A common means of entry has been to join a creditors’ committee, which often comprises investors that have bought claims from the original creditors and then weigh in on the reorganization discussions.

Ad hoc committees of securities holders are relatively new. Investors on ad hoc committees also try to influence the outcome of a bankruptcy by expressing, en masse, their interests and objections. Unlike members of a creditors committee, however, they are not restricted from buying and selling securities of the company.

The AP pointed out that the new ad hoc committee is the second to disclose holdings in Northwest.

Last week, the “ad hoc committee of equity security holders” — Owl Creek Asset Management, Gracie Capital, Greywolf Capital Management, Jeremy Hosking, Latigo Partners, Marathon Asset Management, Mason Capital Management, Sandell Asset Management, and Taconic Capital Advisors — agreed to disclose their holdings following an order from U.S. Bankruptcy Judge Allan Gropper, according to published accounts.

Previously, the committee had asserted that the information is a trade secret and not relevant to Northwest’s bankruptcy case.

Northwest expects to emerge from Chapter 11 in June.

As is generally the case, under the reorganization the current equity will become worthless. However, the company expects unsecured claimholders to receive about 74 cents on the dollar payable in new shares, according to the AP; secured claimholders will be paid in full, in cash.